Highly effective habits of highly happy retirees

Third edition of how-to retirement book offers secret formula of those who did it right

The annual rite of late winter -- the last-minute contribution to the RRSP before the deadline (March 3 this year) -- generally serves as a reminder for most Canadians about the importance of planning for retirement.

Most of us do a fairly diligent job in this regard. According to a recent RBC poll, six in 10 adult Canadians have an RRSP, contributing about $4,653 annually, up $500 from the previous year.

Yet few people would state they have 'mastered' their retirement. Local financial expert Doug Nelson has been working one reader at a time to shift this attitude ever since 2009 with his how-to retirement guide Master Your Retirement: How to Fulfil Your Dreams With Peace of Mind.

With its first two editions, about 4,000 or so Canadians purchased the book -- and perhaps they do feel they are now mastering retirement. The book is a compact -- less than 200 pages -- yet comprehensive step-by-step guide that covers the different stages of retirement as well as how to prepare for it.

This month, Nelson's publisher -- the Winnipeg-based financial learning institute, the Knowledge Bureau -- launched the third edition, featuring updated numbers for tax credits, RRSP and TFSA contribution amounts and other ever-changing regulations regarding other important aspects of retirement finances.

Nelson says the book was originally born out of a course he and Knowledge Bureau founder and tax expert Evelyn Jacks developed for financial advisers in 2008.

"It came out of a very intensive course made for financial advisers called Tax-efficient Retirement Income Planning," says Nelson, a certified financial planner and licensed portfolio manager.

"The Master Your Retirement book is really the consumer version of that course."

Covering everything from retirement-income layering and portfolio construction to illness and estate planning, the book is compendium of what Nelson does every day with his clients. And through his work, he's come to realize the people who truly 'master' their retirement are not necessarily those with vast amounts of wealth.

Undoubtedly, money plays a big role in happiness in retirement, he says. But it's relative.

"Everybody that I've worked with has enough," Nelson says.

"It all depends on what kind of lifestyle you expect to have. The challenge is meeting those expectations with the resources they have."

What he has found is the shiny, happy retirees sitting across his desk share similar attitudes about retirement.

"These are seven things I've seen through my practice that people have done that have contributed greatly to their success."

Similar to what self-help guru Dr. Stephen Covey wrote about in his bestselling The 7 Highly Effective Habits of Highly Effective People, Nelson has found there are seven principles highly happy retirees all tend to have in common.

And they have less to do with market returns and RRSP contributions and more to do with the soft, fleshy issues that can be difficult to put a dollar value on, yet they still have a profound impact on retirement finances -- so much so Nelson felt it was important to include them in the latest edition of his book.

So, if you're facing retirement soon, in the midst of it, or it's still a ways off but you're concerned about it, Nelson's seven lessons he's learned from those clients whom he calls 'the masters' is a good place to start.

Principle #1: Masters of retirement make gradual changes over time

Be the tortoise, not the hare, because slow and steady wins the retirement-finances arms race.

"The people who are the most successful are those who put thought today into where they want to go tomorrow," Nelson says. "And then they inch their way in that direction. It's not a 180-degree change."

In other words, for the younger adult readers out there, the sooner you start planning for retirement -- thinking about what you'd like to do, savings little by little and learning about all its financial complexities (income layering) -- the more likely you will be successful in achieving your retirement dream. It's all about methodical planning that evolves as your life does.

"When people make small steps in this way, they're less likely to make big mistakes that set them back or they may never recover from."

Principle #2: Masters of retirement are externally focused

Navel-gazing isn't especially helpful at any stage in life. But it can really hamper our ability to enjoy the golden years.

"The people who tend to be the most content with things are the ones who see the world as a much larger place than just themselves," he says.

Even clients with modest means who are community-minded and engaged in the world are much happier in retirement than those with ample savings to engage in purely individualistic pleasures.

"It's night-and-day. In other words, it's not about the money," he says. "When I see my clients who are busy doing things in the community, they tend to be much more appreciative of what they have than unhappy about what they don't have."

Principle #3: Masters of retirement are forward-looking

Planning for retirement necessitates thinking about the future, but so, too, does planning while retired. It can be a very long haul, even exceeding our work years, and retirement isn't the same all the time. The problem for most people is we get preoccupied with our daily lives and forget about the need for keeping the eyes on the prize.

Of course, you need to define what the prize is, exactly.

That's why Nelson suggests developing a bucket list -- things you'd like to do before you kick it.

Think both near- and long-term, he adds.

"If you're looking back on your life three years from now, for example, what would have to happen for you to be really happy?"

Telling someone that thinking about the future is essential to successful retirement planning is hardly revolutionary advice (duh!), yet sitting down to plan, which should be done even as frequently as a couple of hours every month, can easily get brushed aside amid coping with the day-to-day trials of life.

"It (principle #3) is just a really good reminder to keep looking ahead and not to be too concerned about what happened in the past."

Principle #4: Work as a team

Many people don't retire alone, yet quite often Nelson says he sees couples act that way even though they need to discuss their retirement plans -- with each other -- well in advance of actually retiring. In particular, they need to be clear with each other about when they would like to retire.

"I see a lot of people who say 'I want to retire at this date' without even asking about their partner," he says. "They are banging the table looking for some kind of happiness, yet ironically, if they were listening to what would also make their partner happy, they would find themselves happier."

Equally important is working as a team toward a common goal will lead to more efficient use of savings once retired because seniors can split pension, CPP and even RRIF income to lower the taxes they pay, which in turn increases the longevity of their wealth -- and maybe their happiness, too.

Principle #5: Masters have a plan B

Just like anything else in life, retirement generally never turns out as planned.

"One of the themes I've tried to reinforce in my practice is the whole notion of having a backup plan," he says. "That's sort of a new concept that doesn't get talked about a lot in the financial services industry." Quite often, a successful retirement plan will hinge on getting an average annual rate of return throughout retirement.

"You hear about 'if only you had a seven per cent rate of return, year over year, month in and month out, life would be perfect,'" he says.

Retirees who truly enjoy their golden years have a contingency plan, for example, if their investment portfolio doesn't perform as expected.

"Be aware of the risks of various choices, and from a financial planning standpoint, you can quantify those things if things don't work out," he says.

"When people understand how they would survive, they tend not to be as freaked out about those issues afterward."

Principle #6: The masters are detail-oriented

Good financial management boils down to paying attention to the details, and minding the small stuff becomes even more important in retirement when we're often living on less with a finite amount of money to see us to the end.

If you haven't started yet, you will find budgeting extremely helpful to managing retirement finances. In fact, it's beneficial at any stage of adult life.

"A budget doesn't have to be constraining; it's just about watching and knowing where your money is going," Nelson says.

Detailed, tax-efficient income planning is also essential -- something the financial industry often doesn't do well when helping people manage their retirement savings.

"Ninety per cent of the financial services business is focused on capital and whatever income it spits out is what it is, but the problem is that a lot of the income could get annihilated on the tax return."

Nelson suggests focusing on the after-tax income requirements first and then working backward.

"That will often tell you how to structure the portfolio to be tax-efficient."

Principle #7: Masters never stop learning

The secret to a long, happy life is lifelong learning, Nelson says. It's not just a matter of staying active in retirement. Retirees need to find activities that are a little bit challenging, as well as enjoyable.

"When I see people who are generally charged up about what's going on in their lives, it means that they're keeping things from going stale, and often these people also live longer," he says. "It's when people exit work -- choosing to do nothing -- that they tend to be the most miserable."

An aptitude for learning also bodes well for managing the finances in retirement. Taxation rules change annually -- and they don't become any less complex. Investing is also ever-changing with an increasing array of income-oriented products for a growing number of retirees. Sure, an adviser can help manage the retirement finances, but it's also important to keep abreast of what's new and understand how these changes can affect the big picture.

More than anything, Nelson says, lifelong learning is really about the pursuit of lifelong happiness.

"It's not easy, but when you put in the work, good things come," he says. "If you're expecting to retire, go on auto-pilot with nothing but sunshine, it doesn't happen."

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